Amazon president resigning to head B2B exchange

Joseph Galli, who was also the e-tailing giant's chief operating officer, is leaving to become CEO of VerticalNet.

January 2, 20024:43 PM PST

Joseph Galli, Amazon.com's chief operating officer and
first-ever president, has resigned from the online retailer to become CEO of business-to-business exchange VerticalNet.

Galli, a former executive with Black & Decker, joined Amazon just 13
months ago as the e-tailer sought to deepen its executive ranks. His
departure comes one day before the company is expected to report
second-quarter results.

In a three-paragraph press release, Amazon said Galli is leaving the
company "for personal reasons." In leaving, Galli walked away from nearly 4 million shares that could have been worth over a billion dollars but are worthless today.

In the statement, Amazon CEO Jeff Bezos said: "We'd like to thank Joe for his hard work and accomplishments over the last year. I believe he is making the right decision for him and his family circumstances. We all wish him the very best." Bezos will assume the duties of president.

VerticalNet, meanwhile, announced that Galli will become its CEO. Mark Walsh, VerticalNet's current president and CEO, will become chairman, succeeding Doug Alexander, who becomes vice chairman.

Galli will take over at VerticalNet on Thursday, a VerticalNet representative said. VerticalNet chose Galli because of his industry and international business experience while working at Black & Decker and his Internet experience at Amazon.

"It's a great marriage," the representative said.

Galli's children live on the East Coast, and that was a key factor in
Galli's decision to leave Amazon and join VerticalNet, said Amazon
spokesman Bill Curry. While Amazon is based in Seattle, VerticalNet has
its headquarters in Horsham, Pa., just outside of Philadelphia.

"It was a complicated arrangement for him to try to commute
transcontinentally," Curry said. "He needs to be near his kids."

A representative for Galli did not immediately return calls.

News of Galli's resignation sent Amazon shares down $3, or nearly 8
percent, to $35.75 in midday trading. In late trading, shares were down $1.38, or almost 4 percent, to $37.38. When Galli joined the company in June 1999, Amazon shares were trading at a split-adjusted price of about $60. The shares reached a 52-week high of $113 last December.

VerticalNet shares were up 38 cents to $57.13 in late trading.

Last month, Amazon's share price fell to a 52-week low of about $32 after several analysts questioned the company's revenue growth and
dwindling cash reserves.

Galli's departure could further hurt Amazon's stock, said Lauren
Levitan, a financial analyst with Robertson Stephens. But she noted that the company has a "deep management team" that should weather the departure.

"This is not a company that's run by one person," she said.

For the first quarter, the company posted a widening pro forma loss of
$122 million, or 35 cents a share.

Wall Street, meanwhile, expects the company to post a loss of 35 cents a share in the second quarter, according to First Call/Thomson Financial.

Tom Wyman, financial analyst at J.P. Morgan Securities, said Galli's
departure "won't be a big loss" and that today's drop in Amazon's stock
price is an overreaction by Amazon skeptics.

But Genni Combes, who covers Amazon for Chase Hambrecht & Quist, said
Galli's resignation could prove troublesome for the e-tail giant,
especially if it is followed by further executive departures. Galli's
move comes as the company has come under intense scrutiny by investors
eager for it to show a path to profitability, and as Amazon has attempted to shift its business from low-margin e-tailing to being a high-margin shopping portal.

"I think this is a negative," Combes said. "Galli was perceived as
a strong leader within the organization, and it's always a blow to an
organization when one of the key management figures leaves."

In a March filing with the Securities and Exchange Commission, Amazon reported that Galli earned $102,266 in 1999 and received 3.9 million stock options. He also received a $2.9 million signing bonus, $100,000 for signing a noncompetition agreement and $31,568 in moving expenses.
Galli's options were priced at $57.95 per share, making them worthless, or "under water," at today's price.

When the shares peaked in December at $113, Galli's options would have been worth more than $215 million had he been able to exercise them. However, the first portion to vest came on June 24, when he could have exercised 147,000 shares. But the shares haven't traded above $50 since mid-June, making his shares worthless.

Galli's option plan was stretched out over 20 years, with 3.75 percent exercisable in each of the first 10 years and 6.25 percent exercisable over each of the subsequent 10 years. Had Amazon's stock price appreciated at 10 percent annually over that 20 years, the options would have been worth $1.3 billion.

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